Angiotech's Drug-Coated Pipeline


By Amy Tsao Drug-coated stents have been one of the most promising breakthroughs for the medical-device industry. These tiny scaffolds, used to prop open arteries, are doused in medicines that prevent reclogging. Sales are booming. Johnson & Johnson's (JNJ) Cypher brought in $1.4 billion in revenues last year. And in the first 10 days since approval of its Taxus stent earlier this month, Boston Scientific (BSX) said it has already sold 92,000 units. Boston predicts sales approaching $2.2 billion in its first year.

An early pioneer in this field is Angiotech (ANPI), a small Vancouver-based outfit that came up with the idea back in 1997 of pairing a cancer drug called paclitaxel with a stent. This is the technology behind Taxus, and it's proving to be a gravy train for Angiotech. Analysts expect that royalties from Boston Scientific will generate $114 million in revenue in 2004 and $226 million in 2005 -- a huge jump for a company that reported a mere $28 million in revenues in 2003. In 2004, it's expected to post earnings per share of 65 cents, up from a loss of 66 cents per share a year ago.

Its stock has prospered as well, doubling to $23 in the last year as the market prices in royalties revenues from Taxus. Now, Angiotech is looking for a sophomore hit. It plans to "avoid being a flash in the pan," says CEO William Hunter, who adds that work is proceeding on many other projects. "There's going to be attrition," he admits, but the goal is to "still be in a position to have two or three of them get approved in the 2005 or 2006 time frame."

"BIG OPPORTUNITY." Angiotech's strategy is to find other kinds of implants and devices that can be improved by adding drugs. And it has a "pretty rich pipeline of other products," says Jayson Bedford, analyst at Adams, Harkness & Hill, "though not as rich of a prospect as Taxus." (Bedford's firm received banking fees from Angiotech in the past year.) Bedford has a strong buy on the stock.

Other analysts agree that Angiotech may be on to something. It's increasingly common for the relatively low-tech business of medical devices to turn to drugs for a boost. And pharmaceutical companies, too, see potential for extending sales of their products through such devices.

"There's a big opportunity here," says Raymond James analyst Brian Bapty. Such turbocharged products could improve the effectiveness of all kinds of devices, resulting in price tags that are higher by between 5% and 25%. (Bapty's firm has performed investment banking for Angiotech.)

NEW AND IMPROVED. Certainly, leading device makers like Guidant (GDT) and Medtronic (MDT) are focused on developing their own drug-coated stents. However, the applications down the road could be much broader.

"It's not just about devices," says Hunter, noting that sutures, screws, wires, and all "physical solutions" could be improved. In a survey of doctors using the 100 best-selling devices, Hunter says about 80 "had limitations that we could identify."hey caused either too much scarring, not enough scarring, or were prone to infections.

A handful of products are already on the market that meld drug and device. Biotech company Medimmune's (MEDI) FluMist combines an inhalation device with live vaccine. Drug-coated stents reduce tissue growth around the tiny scaffolds that keep an artery open after angioplasty. Sofamor Danek, a Medtronic division, makes a spinal-fusion device incorporating a protein that promotes bone growth, making recovery from lower-back surgery quicker and less painful.

REGULATORY CHANGES. MiniMed, another Medtronic division, makes a combination insulin pump and glucose monitor. Right now, a diabetic measures blood-sugar levels by pricking a finger. Based on that reading, the user then self-administers a jolt of insulin. The next versions of the monitor-pump device will come closer to replicating the way a healthy pancreas supplies insulin, says MiniMed spokesperson Deanne McLaughlin, who estimates it will be available in four to five years. "Ultimately, we believe we'll have a fully automated system," she adds, in which a sensor continuously reads blood sugar, while a pump dispenses the appropriate amount of insulin.

As blending of various medical technologies becomes more common, the U.S. Food & Drug Administration will face new regulatory challenges. To address these complexities, the agency at the end of 2002 created the Office of Combination Products, which manages the review process for drug-device products.

"Companies are increasingly looking at modifying existing types of products to make them better," says Mark Kramer, the office's director. And while device makers were the outfits chiefly interested in making such tweaks a decade ago, drug companies lately have shown increasing interest, he adds.

ON THE WAY. To Angiotech, the approach may also pose fewer risks than those faced by companies trying to identify the next blockbuster drug. Angiotech considers only drugs -- usually off-patent ones -- that are already on the market and how they might fit in with a particular medical problem and device. Says Hunter: "The risk we're taking is whether we understood the problem as well as we thought."

Angiotech's pipeline may not yield another transformative device-drug product for another couple of years, but some of its projects have potential, analysts say. For example, it is working -- also in partnership with Boston Scientific -- on another drug-coated stent for use in narrowed arteries in the legs and arms. And it's testing a drug-coated stent that encourages scarring, the goal being to anchor "baggy" arteries and prevent them from bursting or leaking.

Another device involves a paclitaxel wrap that could prevent unwanted tissue growth after bypass procedures. Hunter says two new projects -- one orthopedic and the other gastrointestinal -- will be announced in the coming months.

No question, more combination products are coming, and they won't just be cardiovascular. Analysts see potential uses in dermatological, metabolic, gastrointestinal, and neurological problems. "In 10 to 15 years, more devices will be drug-coated than not," Hunter predicts. If he's right, many more companies -- drug, device, and biotech -- will be in the field, making for plenty of competition for Angiotech. But trailblazing could still have its benefits. Tsao covers biotechnology issues for BusinessWeek Online. Follow her Biotech Beat column only on BusinessWeek Online


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